Analysts at ANZ noted that dairy farmers would have woken to some good news this morning with the first consecutive rise in GDT auction prices since December 2015. Key Quotes: "However, other exporters are unlikely to be so happy with the NZD/USD pushing to 0.7040." "Overall the GDT-TWI increased 3.8% with gains across most products sold. Importantly, whole milk powder (WMP) prices increased 7.5% and later-delivery contract periods rose even further (+9-10%) to circa US$2,300/t. This will provide Fonterra some comfort that US$2,500/t for WMP by the end of the year is achievable." "The continued strength of the NZD will be a concern, but it also needs to be remembered Fonterra will have a significant amount of hedging already done around the mid-0.60s for next season. While we remain cautious, we do think there is a higher chance that WMP will outperform the rest of the dairy complex over 2016/17." "Three things we are watching are: New Zealand supply, oil prices and Chinese import demand. New Zealand supply is expected to be under further pressure in 2016/17 due to lower cow numbers and farm management/system changes. Oil prices are off their January lows and fundamental drivers (i.e. lower US supply) are pointing to further improvement over the second half of 2016. In China, supply appears to also be easing back as high production costs and falling milk prices squeeze returns to milk producers. Imported WMP is also very attractively priced compared with domestic Chinese product. We remain cautious on China as it is still somewhat a black box, but as we move past the seasonal peak in local supply, import demand is expected pick-up." "The NZX futures curve has been anticipating a further lift and it now looks like the physical market (GDT auction) is starting to reflect similar sentiment. That said, there are still plenty of challenges for the rest of the dairy complex and this will somewhat cap the performance of WMP. After last night’s auction, WMP is now more fairly priced versus buyers using a skim milk powder/milkfat product mix – before it was the cheaper option." "For SMP, European intervention is anticipated to be full by the middle of the year after its earlier announcement to double the volumes it takes to 218,000MT. This product will need to be re-sold at some point, which is anticipated to cap pricing for some time. Last night’s auction result continued to reflect this." For more information, read our latest forex news.